November 2010 Archives

There's an interesting Letter to the Editor today (4th letter) on the present and future of the UBP:

A few comments:

Frankly, I have been sincerely amazed that the politicians (I did not say members) of the UBP seem to have this idea that they are going to, some day, form the Government. Amazement aside, I consider myself fairly well informed; reasonably well educated; well read; and even able to look at both sides of the coin ... and I cannot understand how these people actually think they will win again.

Actually, very few think that.

The UBP has the same people, saying the same things and doing things the same way as they always did or, at least, that's what they look like to the public. There are no younger people to speak of; no new ideas; and as far as I can see nothing new on the horizon.

Correct. The next generation left for the BDA, but there is no fundamental philosophical disagreement between the UBP and BDA., and the BDA haven't raised any substantive new ideas or differentiated themselves. They have not demonstrated momentum in the polls, appearing to have capped out, but do have an opportunity to try and score a small win in the Warwick by-election from what I suspect they see as a gift by the UBP. (They'd better knock it out of the park to seize the initiative.)

For the moment, the UBP is the Official Opposition and, because of that, their MPs and Senators have a pulpit from which to speak. There's no doubt in my mind that politicians almost always have two common traits: they all think they have an answer and they all love to talk !!

This is unfair for the following reasons.

Firstly, the UBP is the Official Opposition because they remain the second largest party in Parliament and won 14 seats in the last election and 47% of the vote...and continue to take the grunt work of being the Official Opposition seriously. The BDA have not demonstrated viability at a general election yet. This idea that the UBP should just hand all their seats and the role of Official Opposition over to the BDA is naive and predicated on the path of least resistance.

If the BDA is ready to step up they need to act like it, and failing to produce a formal Reply to Paula Cox's Throne Speech is not acting like it. That was a huge - huge - missed opportunity to walk the walk rather than just talk the talk.

It gets worse. Mark Pettingill actually used the UBP's Reply as the source of his speech on behalf of the BDA, picking through it point by point and complimenting the UBP on their Reply. That was pretty poor for a party claiming to want to step up to that role.

Say what you will about the UBP, and slap them about for not getting it, but the people the BDA like to say need to pack it up and hand them the keys are the people who do the unglamorous behind the scenes work that is required of an Official Opposition.

If anything, you could argue that the UBP take their role too seriously, to the detriment of the politics.

I haven't been involved in the UBP since the 2007 election, and am not involved in the BDA. But both parties are full of good people with good intentions who are my friends and who I stay in touch with.

This standoff is not productive and is at a stalemate. Everyone can see that. But hardline stances like calling for the UBP to just give up and hand the keys to the BDA makes accommodation and compromise very difficult, and the BDA are in no position to try and dictate terms.

The PLP, most notably through their former Premier, refused to be interviewed by the Royal Gazette, but would regularly go on partisan outlet Hott 107.5 (owned by their MP) to be interviewed by a partisan radio host (his appointed Senator) to decry The Royal Gazette for media bias and wanting to fix it through a media council.

Didn't the former Premier say he wanted to be judged by his enemies? Better to judge by the company you keep.

There is a lot to say here, but we need to be honest with the students. They deserve honesty. To tell someone you've graduated tells them that they have acquired some skills and a level of education that is valuable to employers.

To tell people that you're 'graduating' implies that what they have achieved has value to an employer. This does not if the overwhelming majority are not proficient in math.

It is unfair and immoral to tell someone they've graduated, with the knowledge that that graduate is unemployable. And it is unfair to blame employers for a supposed systematic failure to employ Bermudians if large numbers of those Bermudians cannot meet minimum standards.

At this morning's session of the Joint Select Committee investigating causes in the rise in crimes of violence, the Collector of Customs said that there had been 236 applicants for 12 entry level vacancies, but that only 12 of these had passed the written tests with only eight getting through both the written and drug tests.

The Customs example demonstrates that too many Bermudians are under-educated and over-drugged. If you can't pass a written test or a drug test you are unemployable, not the victim of discrimination.

Today's revelations should put to bed any further discussions of the supposed conspiracy by employers to not hire enough Bermudians. Our economy is built around highly skilled intellectual capital. We are not preparing our people to participate in it.

Lowering standards and legalising drugs is not the solution.

Today the Board of Education admitted, with statistics, the disconnect between 'graduating' and standards, the true extent of the problem.

But the language of politicians must change from denial and social promotion to brutal honesty. The Government must stop pushing the blame and the impact of our broken education system onto the private sector employers. It is dishonest and dangerous.

Parents too have a role to play, and if parents won't participate or home situations are unhealthy then Government must step up and step in to drive individual performance with extreme measures (local boarding schools for example).

This problem has been decades in the making and will take at least a decade to fix. But the impact of the current undereducated generation is only just beginning.

I've posted recently on the PLP's discipline around The Narrative, and have also said for years that in the Bermuda context the PLP are Republicans and the UBP the Democrats. This article really nails it, just switch 'conservatives' for 'PLP' and 'progressives' with 'UBP':

Progressives The UBP often stand in awe of the ability of Republicans the PLP to communicate their message in simple stories. Usually that begrudging admiration is focused on the ability of conservatives the PLP to so effectively make progressives the UBP the villain. To the extent that progressives the UBP have even attempted to use narrative, their efforts have often zeroed in on how to return the favor by demonizing Republicans the PLP.

Consequently, when it comes to coherent policy narratives, progressives the UBP either don't produce one at all or reactively focus on villainizing Republicans the PLP. This has had the effect of depriving progressives the UBP of any hope that voters might conclude that they are their "heroes."

The descriptions of progressives relying on the logic and good sense of their policies is identical to what the UBP does. I often comment to people that Bob Richards delivers great economic critiques, but fails to be persuasive because he's convinced that everyone can see just how logical and well reasoned his position is:

Up until now, progressives the UBP appear to have presumed that their policy proposals self-evidently reveal the underlying motives for seeking those outcomes. They've felt no need to offer the "why" for voters to evaluate -- seemingly hoping that the sheer force of their logic and the weight of the facts would carry the day. However, work by scholars like Jerome Bruner suggests that narrative reveals intentions or the "why" behind the actions of a player in a drama far better than a rational argument does.

For voters assessing complex policy questions that they may not feel that they fully grasp the details of, knowing why a politician is pursuing a policy may be the critical question the voter wants answered. And it is in that regard that the current communication tactics of progressives the UBP falls most woefully short.

Meanwhile, the narratives that conservatives the PLP use often in fact make progressives the UBP the villains. What progressives the UBP have failed to notice is that those same narratives "star" conservatives the PLP in the role of "heroes" of those same stories, and the research of Dr. Jones suggests that's where the real power of those narratives resides.

The Dame Lois as sole National Hero fixation, naming of public buildings after PLP members and statues commissioned in their honour are the visible manifestation of this dynamic.

Conservatives The PLP are the heroes of their own stories. Progressives The UBP need to internalize that same sense of pride in their efforts and then infuse their policy narratives with political champions. This may finally activate the reasons voters already believe are good cause to support progressive the UBP's policies, but constantly push to the back of their thoughts -- or the "why" of public policy. People want more than to be a part of a laundry list of meaningless policy facts or sterile solutions; rather, at the very core of humanity you will find a need to explain the world in a way that makes each one of us the protagonist. And nobody wants to be the protagonist in a story nobody would want to read or hear. No, we all want to be the hero in a story that places each one of us as a champion of what is righteous and good. Progressives The UBP certainly have the building blocks for such a story.

The article is really worth a read. And of course my argument is so logical as to be self-evident.

A quick follow up and update on my last post on the number of work permits in force.

I've been very reliably informed that the real number of work permits for 2010 is a slightly less worrying 10,600, not the 6,817 number used by the Minister to ABIC yesterday.

Apparently that number is the number where applications were made for exemptions or extensions or are subject to term limits. So that changes the apparent large reduction in work permits for 2010, which is still a large reduction from 2008 of 13,316.

A reader also pointed out that in many cases one individual can be 'issued' multiple permits in a year, a temporary, perhaps more than one before their actual permit. So the total work permit number is generally a bit inflated, but the real like to like numbers are 10,600 vs 13,316 in 2008 for example.

None of this changes the conclusion however, which is that we have seen a large exodus of jobs over the past couple of years, and that term limits is unnecessary and destructive to Bermuda's economy, particularly in a contracting economy. As Bermuda's companies have prospered and become global in nature and operations they have many more options available for where to locate their staff (and their domicile as we've seen).

I suspect that the number will continue to contract for some time as well, as construction jobs wind up (offset somewhat by the hospital redevelopment) and companies continue to gain efficiencies and relocate personnel as term limits bite and recruitment to Bermuda becomes more difficult.

I should add that it is refreshing to see data being used for a change rather than the usual smoke and mirrors, but the presentation of data yesterday by the Minister was incredibly confusing. I don't know anyone who read the data as clarified above.

Bearing in mind the partial year for 2010, this is a huge decline in total work permits in 3 years. The non Bermudian workforce is half...half...of what it was only two years ago. You can infer the extent of the contraction in the economy from this number, including a 4.5% unemployment rate. This has huge implications for payroll tax collection and all the other spending that flowed through the economy.

@ a median salary of 65000 per expat that equates to about $195 million in salaries no longer flowing to the island.

That means at 16% payroll tax, that's $31.2 million lost in government revenue.

Let's use the 2004 Household expenditure report for some numbers here. Since we're only given things in black and white, let's compare and average. 78% of weekly household income was spent by "white and other", 71% by "black". Let's say an average of 75% of of income is spent.

Let's assume taxes aren't included in these expenditure numbers so lets take that out of the median salary (Let's assume 5.75% taxes, roughly for illustration). 65k-3.73k = 61.27k

This * .75 * 3000 people is 137 million is expenditure.

30% or $41 million went ot housing
13% went to household goods services and supplies so $18 million
13% also went to food and non-alcoholic so $18 million

That's a significant chunk of money no longer flowing into the local economy.

It would have been more accurate to say "of the remaining 6,817 active work permits, 35 percent or 2,394 have been granted waivers; a further 35 percent have been granted extensions and 30 percent or 2,037 are subject to term limits of six years."

I say 'remaining' because we have no way of knowing how many jobs (not people) emigrated as a result of declined waivers or extensions, but this suggests it is material. We can all point to anecdotal examples of job makers who left due to work permit issues, and the associated middle class professional positions with them.

It is shocking then that when the workforce and economy is contracting so significantly that Government is persisting with a policy which is directly contracting the economy.

Regardless, the number of waivers and extensions would still be a majority, which demonstrates the hollow and feckless nature of the term limits policy. It is sad that the PLP would damage the economy rather than admit the obvious on term limits and withdraw a policy which they quietly circumvent routinely.

Let Immigration do its job. Why pretend that a stable non-Bermudian workforce is a threat to Bermudian job and income aspirations when it is part of that rising tide that lifts all dinghies?

Kim Wilson talks about seeking equity, but what this has created is negative equity.

This is not good policy, or even good politics. It is political malpractice.

Surely the logical conclusion from that statistic is not that the policy is working but why have it at all? Surely a policy that the Government doesn't follow almost three quarters of the time is one that should be discontinued.

The policy impact is nil while the economic impact is severe. A term limits policy that Government won't abandon in order to save face drives uncertainty, increases cost, generates bad blood and makes our competing jurisdictions more attractive.

For years, academics have noted the connection between immigration, entrepreneurship, and job creation. Vivek Wadhwa, senior research associate at Harvard Law School's Labor and Worklife Program, published four journal articles from 2007 to 2009 as part of a series on America's "New Immigrant Entrepreneurs" that drove home the point that immigrants start companies at high rates and stimulate job growth. Great Britain has endorsed this position, too. Despite a pending immigration cap, British Prime Minister David Cameron just established a new "entrepreneur visa" for foreign founders with investment commitments from leading investors.

Kim Wilson just made the case for ending term limits by demonstrating that her party is only committed to it politically, not in practice.

So do it. Make it go away and deal with immigration issues and jobs for Bermudians (which by the way the previous Minister said was not the objective) through the sensible channel of work permits.

The bye-election is interesting on a couple levels. As one of the PLP's
safer seats they will need to produce a strong result. Turnout will
presumably be low as most bye-elections are, however if it is unusually
low that would presumably signal a message being sent of overall
disenchantment with the PLP Government, particularly in a bye-election in
a new Premier's honeymoon period which should provide some uplift.

There is little chance of the PLP not holding this seat, particularly with
the BDA and UBP potentially splitting the non-PLP vote.

On another, and perhaps more interesting level, as the first election
since the UBP split, what happens between the BDA and UBP is largely an
unknown. For the BDA they will surely see it as critical to beat the UBP
for second and use that as a launching pad for credibility, recruitment
and momentum.

The BDA's main weakness has been a lack of noteworthy PLP cross-over
support. It remains a party which has not distinguished itself from the
UBP particularly well or at all.

The UBP-BDA disagreement remains over viability not philosophy, and if the
BDA candidate is able to gain a larger vote than his UBP counterparty they
will be able to claim a small victory.

If however the BDA does not garner much voter support, then they will
surely have to re-assess and ask themselves where they go next.

Similarly, if the UBP does not manage to be the runner-up, it will be yet
another confirmation of their slow demise and their support will continue
to erode.

Not at my most eloquent, but hey, I was in a rush.

The more I think about it the more interesting and consequential this election is to the UBP-BDA dynamic. Primarily because with Brown gone it's tough to call for a protest vote against Brown, so the PLP should have little problem in winning, albeit it with much lower support.

It is clear to me that both Oppositions are well aware that they are on a path to mutual assured destruction if they go into a general election against each other. Single seat constituencies are a two party system, and with the Oppositions ideologically indistinguishable the result is surely the PLP taking a larger majority by slipping up the middle as the UBP and BDA cannibalise non-PLP votes.

The political reality of the split is that the BDA took the next generation of candidates and workers with them, leaving the UBP with a lack of a bench to go to. However, the BDA were unable to take with them any credible experienced senior Parliamentarians who give them immediate credibility as a Government in waiting.

Right now they're both screwed, particularly as the BDA have not had any high profile PLP crossover support.

Regardless the effect of the split has been positive in my view and I supported it (although I have nothing to do with either party); it has accelerated the realisation within the remnants of the UBP that it is not a viable electoral force.

So...as the first empirical test of voter reaction to a new party the results will have some impact into what I believe is the knowledge by both Oppositions that they need to come together in some form other than the UBP prior to the next general election.

The disagreement is at its core about viability and the vehicle, not policy or philosophy. Both are fiscal realists and social liberals. So competing against each other is counterproductive and perpetuates the PLP's dominance.

If the BDA manage to beat the UBP for second (especially if they draw away PLP support) they will gain vital leverage in any negotiations that may be going on between the two to gain concessions as the party of the future.

If the UBP are able to hold on for second they will be able to make the case that the public are not receptive to a 3rd party, and will be able to push for the leadership role in any new entity (which is inevitable in my view).

I have some further thoughts about how to resolve this which I am chewing on and will write in a subsequent post in the coming days.

But for now, I wanted to elaborate a bit on why the coming election is so consequential regardless of what happens. And both sides are well aware of this, with the UBP with the most to lose.

It's pretty sad I know that I actually look forward to Fridays because I can listen to Parliament on the radio; masochism at its best. The upside is that more often than not I come away bemused with one of those "I can't believe they said that" moments.

The reason the PLP has so much debt now is because the UBP ran balanced budgets all those years.

Seriously.

Here's one mangled quote from the Gazette article:

"Think about what we have done and if the previous government, the UBP, had taken up a few of these initiatives they wouldn't have had a deficit like they did."

This is what I would call The Extreme Narrative, the extension of the "it's all the UBP's fault and will always be" to its illogical extreme.

Of course, what Mr. Desilva didn't acknowledge is that like any responsible household, the UBP lived within Bermuda's means which means making choices. Like families have to choose between essentials and luxury items - groceries versus a luxury car - Governments have to make choices. In fact, I think that's the basic role of politicians - choices and compromises. The PLP seem unable to do either.

It's fair game to argue over prioritisation - that the UBP should have done this but not that - but to defend the PLP debt on the basis that the UBP should have racked it up is novel at best. The reality is that the UBP's balanced budgets actually facilitated the PLP inheriting a strong financial position and being able to accumulate debt on the back of that.

He really should be thanking the UBP for balancing the budget, so the PLP had the freedom to unbalance it, not criticising them for it.

I suppose the point is that the PLP are providing more services than the UBP did during their tenure which costs more, but that argument is premised on the basis that deficit spending is without consequences.

You can't even argue that the debt has been stimulative, because it's servicing day to day expenses, and ignores the fact that tens to hundreds of millions of dollars have been spent above and beyond the value of the asset (Berkeley, TCD, Dockyard Cruise Ship Terminal), driving debt.

Premier Cox herself has suggested that deficit spending is unsustainable by promising $150M in savings but no layoffs, which implies massive cuts in services: Approx. $1B budget, 150M off is 15%, but half of the $1B is salaries which she won't touch so she's got to cut 30% from services. Good luck with that.

This speaks to the core difference between the PLP and the UBP/BDA, namely the PLP perpetuate the 'free' services political model where the UBP/BDA are advocating living within the Government's means.

There is no such thing as free FutureCare, or free public transport, or free anything. Government has no money, taxpayers have money and taxpayers also have the debt. Bermuda is unique in that we do not have a diversified economy with any natural resources to support debt payback. And just like when you fall behind on your credit card or habitually overspend as an individual, eventually the math catches up with you.

If I were the UBP, after that exchange with Mr. Desilva, I would publicly - I mean very publicly, print and broadcast ads - pose the question to the PLP of:

"Can the PLP tell us, so all Bermudians can mark their calendars, when it will no longer be the UBP's fault? Is it 20 years, 30 years, 40 years, 400 years? Always?"

Because if the UBP managing the public purse is the cause of the PLP mismanaging the public purse, there really is no end to The Narrative, and no beginning of the PLP Government owning their actions and decisions.

Debt escalation, a squandering of revenue surpluses through the early to mid 2000s, and a disregard for balanced budgets since Paula Cox took over Finance preceded the global recession.

However....I thought the tone was much better than the past and the speech was thankfully devoid of the new Premier's trademark verbosity, reliance on cliches and redundancy.

There's still a lot to be fleshed out, but the extension of the 2016 tax exemption to 2035 is a big positive, as is the commitment to 'overhaul immigration laws'. That can mean anything, but I agree that "the uncertainty, subjectivity and ambiguity created by the law in this area must be addressed."

Now we know why a lawyer was put in charge of Immigration. Bermuda's immigration laws are intricately tied to our economic and social progress, and can either limit or drive our growth. It needs to be modernized to reflect the globalized nature of Bermuda, our Bermuda-based multi-national corporations and the world economy.

We'll see what that holds. It is politically contentious, particularly because of the PLP's use of immigration as a political weapon. This could of course go horribly off track, but I thought the overall tone and direction of the Speech was positive.

The strengthening of the Auditor and Ombudsman is welcome, civil service reforms are needed and a public tendering and contracting process with integrity must be re-instituted.

It's all about execution now, and the PLP have not followed through well on their promises of the past 12 years.

The test will be whether they live up to statements about fiscal responsibility and cost cutting for example, and whether the new Premier will be able to lead from the front versus her 'cog in the wheel' self-characterisation.

How much of that was due to the toxic approach and circus side shows of the prior Premier is, I suppose, one of the things we'll learn over the coming months. But there is no room for mistakes here.

The article is a good read, but the final paragraph is instructive and provides some hope:

For me, though, the key message of this book is that the future does not have to be a depressing choice between accepting sub-par growth or committing fiscal suicide. Canada's experience emphatically demonstrates that replacing bad policies with good ones leads to dramatic and rapid improvement, with the shift to financial soundness restoring confidence and actually boosting long-term growth.

I'm not sure however what a Monopolies Commission would address (BELCO is already rate regulated) and the Border Force sounds a bit American Tea Party-ish and not so relevant to an island in the middle of the ocean.

The previous Premier watched over contracts...and that was the problem.

I don't say this as a criticism of Ms. Cox. I understand that the intent is to spend some of her political capital early, to try and ease the justified concern about the appearance of impropriety in the tendering and administration of many public sector capital projects under the PLP.

It speaks volumes about the lack of trust in the previous Premier; the identical headline during his tenure would have sent the exact opposite message Ms. Cox is trying to send, and not received the rather than the generally positive reaction to this step.

Over time it would be a mistake to concentrate too much under the Premier directly. That was part of the problem that has got us here under the previous Premier.

The contract tendering should be as free from political involvement as possible, which will actually shield the Cabinet and Premier from criticism. This should be down to non-political Civil Servants which Cabinet needs to leave alone unlike past behaviour.

I hope this is where this is heading.

On a related note, it isn't wise in the medium to long term for the Premier to hold the Finance Portfolio. The Bermuda of 2010 is essentially a multi-billion dollar public corporation, and there needs to be some separation of responsibilities.

The Finance role is deserving of its own dedicated Minister and the problems created under Ms. Cox's tenure will need one individual's undivided attention to resolve. It also of course takes a bit of a leap, and perhaps the help of a honeymoon period and post-Brown exhaustion, for the public to see the creator of our economic mess as the saviour.

Ironies abound.

I understand why Ms. Cox has retained it in a way, because there is no public trust in the integrity of the public finances and she is aware that despite her involvement in the ramp up of debt and overspending, she sees herself as the most credible Finance figure within her party (followed by Terry Lister).

Retaining Finance is not without personal political risk of course.

Her personal reputation and popularity is on the line, as there's no finger pointing. So it does send that message. But it is a sad state of affairs that the new Premier does not see anyone else in her party capable of holding the post.

The UBP has mulitple options (Gibbons, Richards, Pamplin Gordon).

The BDA?

Within the PLP, Terry Lister is the obvious - and only other - choice. But he spent the better part of the past year criticising Ms. Cox's performance and record as Minister of Finance. So that was never going to happen. It was smart to give him a Cabinet portfolio which brings him inside and effectively silences him; no sniping from the sidelines.

But Ms. Cox needs to delegate, and identify a successor for Finance early and transfer the role out. It is not good governance to have the Premier and Finance Minister in the same role.

Yes, I know that David Gibbons did this under the UBP in the 70s, but the Bermuda of 2010 is a far different place, a Global Financial Centre - and the economy is much more complex and globally interconnected.

Minister for Economy, Trade and Business Kim Wilson will oversee work permits as part of her new role.

She said: "This is something new for me. It's a bittersweet feeling because I very much enjoyed the Attorney General's role.

"One of the main areas I will be looking at to start off with will be work permits -- there are a lot of business interests and concerns in respect to time limits.

"It is going to be about striking the right balance."

I think this is positive, an opening of the door for the effective end of term limits which are completely incompatible with growing our economy and providing opportunity and wealth for Bermudians and Bermuda. We'll surely see an attempt to manufacture a face saving measure to pave the way for this, but the policy really needs to be removed altogether to eliminate the negative message it sends investors and job creators.

Removing term limits from David Burch allows the PLP much more flexibility to change course. And, from a distance, having never met Kim Wilson, she's the anti-Burch.

My impression is that she's reasonable, open to dialogue, respected and willing to call them as she seems them.

John Berger, vice-chairman of Bermudian (re)insurance group Alterra Capital and CEO of its reinsurance division, said the way a company was run was far more important than where it was run from. "To a degree, the choice of domicile can be largely irrelevant, as what will effectively determine the level of success for any organisation is the quality of its leadership, its underwriting talent, and the overall financial strength of the company," he said.

Will the Cox Government listen?

The message is clear, domicile doesn't matter...except when it does. Previously domicile mattered because of economics, today those are important, but domicile also matters significantly because of intellectual capital.

What the industry is saying, but our Government refuses to hear, is that if your current domicile says you can't have stability of leadership and underwriters, then they'll move their management to another domicile.

Here's what ABIR's Brad Kading, master of uber-diplomatic-lobbyist-speak, said today in welcoming Premier Cox. For Brad this was very direct as a public statement:

"We also believe some attention needs to be paid to the cost of doing business in Bermuda. ABIR members employ 1,800 people here. Higher costs in Bermuda can create an incentive for employees to be located elsewhere in North American and Europe.

"It's also important to encourage senior company officers to be located here and various government policies affect the willingness of businesses to locate those employees here. We believe that is a discussion that needs to be continued in the coming year. ABIR members contribute more than $950 million annually to the Bermuda economy."

So yes, domicile does matter.

The Bermuda Government is aiding and abetting our competitors and weakening our key industry through their direct actions.

The choice is ours. We can choose to be in this business for the long term or not. Right now we're indicating that we are a short term destination.

Indeed it would...play the argument backwards and think about where would be for jobs if all the international business leaves...play it forward and realise that many Bermudian jobs are ancillary roles to key positions that have a "money" multiplier type effect, in this case more accurately described as a "job" multiplier effect. Contrast our strategy to that of the Swiss and we are in trouble....